Local government
officials should
prepare an estimate
of all potential costs
as well as savings
that may result from
participating in the
incentive program.
This should include for
each employee:
• Estimated base salary
savings,
• Estimated payments to the
Retirement System, and
• Estimates of any other
material costs and savings
which would impact the
total savings to be realized
by the local government.
Retirement Incentive Program
QUESTIONS
If you have questions on the
2010 Retirement Incentive Program,
please email the
New York State and Local Retirement System’s
Employer Participation and Education Unit at
[email protected],
or call them at (518) 474-0167.
Office of the New York State Comptroller
Thomas P. DiNapoli • State Comptroller
Retirement Incentive
PROGRAM
Overview
The 2010 Retirement Incentive Program is a
temporary program provided for certain New York
State and Local Employees’ Retirement System
(ERS) members by Chapter 105 of the Laws of 2010.
The Program has two distinct parts:
• Part A is a targeted incentive for employer-identified
eligible titles. This incentive provides one additional
month of service credit for each year of credited
service an eligible member has at retirement, up to
a maximum of three additional years.
With this information, the
local government can
make an informed decision
on whether hiring new
employees to replace those
who have retired is in the
best financial interests of
the local government.
• Part B is not targeted. It is open to all eligible Tier 2,
3, and 4 members whose positions are not deemed
critical to the maintenance of public health and
safety. Part B allows members who are at least age
55 and have 25 years or more of service credit to
retire without a benefit reduction.
Employers who participate in ERS must have elected to
provide these incentive benefits by August 31, 2010 and
September 1, 2010 respectively, in order to offer these
benefits to their employees.
Office of the New York State Comptroller
Thomas P. DiNapoli • State Comptroller
Cost Savings Requirement
For employers who opt to participate in the Part A incentive program,
the positions targeted for retirement must be eliminated unless the
employer develops a savings plan in compliance with requirements
stipulated in the law. This savings plan must demonstrate that the
combined two-year salaries for new employees hired due to the
retirements results in a minimum cost savings of 50 percent of the
targeted employees’ combined two-year salaries.
EXAMPLE
An employer has one employee who retires under the Part A incentive program. The employee
will earn a total of $85,000 this year and would have been expected to earn $87,500 next year.
The employer must demonstrate a savings of 50 percent of this employee’s combined two-year
salary during the next two years, computed as follows:
Targeted Employee - Salary Year 1
$85,000
Targeted Employee - Salary Year 2
87,500
Two-Year Salary of Targeted Employee
$172,500
Savings Required Over Next Two Years: 50% of $172,500 = $86,250
The employer hires one new employee because of the retirement:
New Employee – Salary Year 1
$42,000
New Employee – Salary Year 2
43,500
Two-Year Salary Cost of New Employee
$85,500
The cost savings would be computed as follows:
Two-Year Salary Cost of Targeted Employee
Two-Year Salary Cost of New Employee
Total Savings Achieved
Additional Cost Considerations
The primary intent of any retirement incentive program is to reduce costs
for local governments. It allows local governments to induce employees
who are close to or at retirement age, and who generally have higher
salaries, to retire. Some of these positions would then be eliminated
and other positions would be filled with new employees, whose starting
salaries would be much lower than the retired employee.
There are, however, other costs and savings in these incentive
programs beyond just the base salaries paid to retired and new
employees. For example, along with lower salary costs, the local
government will also have lower costs for its share of Social Security
and Medicare contributions. On the other hand, the local government
also has to pay the cost of the retirement incentive the employee
receives, as well as health insurance costs of the retiree. These costs
and benefits must be carefully analyzed as a local government decides
whether to offer an incentive and how quickly, if at all, a replacement
worker can be hired in order for the local government actually to
achieve cost savings.
$172,500
85,500
$87,000
The $87,000
total savings
achieved over
the two-year
period exceeds
the minimum
savings of
$86,250 that
was required,
so the employer
is in compliance
with the law and
does not need
to eliminate
the targeted
position.
EXAMPLE
Continuing with the information from the above example, the employer hires the new employee
right away to replace the employee who retired. This new employee will earn $42,000 this year
and $43,500 next year, for a total salary cost of $85,500. The employer will achieve additional
savings due to the difference in lower costs for Social Security and Medicare contributions for the
new hire, amounting to $6,645 over two years. However, the local government is charged the cost
of the additional retirement benefits the employee received as an incentive to retire, which are
estimated at $85,000.1 Finally, the local government has to pay the costs of the health insurance
benefits for the new hire, while continuing to pay for health insurance benefits for the retired
employee. These additional health
insurance costs total $10,850 over
two years. In total then, by hiring a
Two year salary cost of retiring employee
$172,500
replacement right away, the incentive
Two
year
salary
cost
of
new
employee
$85,500
program actually cost the local
government $2,195, as follows:
Salary Cost Savings
$87,000
Plus additional savings:
Lower Social Security & Medicare costs
+
$6,655
–
–
$85,000
Less additional costs:
Retirement Incentive Costs (Tier IV)
1
A final amount will be provided to the
local government by ERS.
Health Insurance Costs
Total Overall Cost to Local Government
$10,850
($2,195)
This example demonstrates
the savings when hiring one
new employee in relation to
the one targeted employee
that retired. If multiple
targeted employees were to
retire, you would compute
the required two-year savings
based on all the employees
retiring under the incentive.
The cost savings requirement
is only applicable to
employers who participate
in Part A of the incentive
program. Part B of the
incentive program does
not have a cost savings
requirement.
This example
illustrates that
salary costs are
not the only cost
considerations
that local
government
employers
should evaluate
when deciding
when, or if, to
hire employees
to replace those
employees
that retired
under Part A of
the incentive
program.